Market Thinking

making sense of the narrative

Always Covid, Never Christmas

Print Friendly, PDF & Email

The latest set of regulations from the UK bring to mind the line from CS Lewis about Narnia, where it was “Always Winter but never Christmas”. C.S. Lewis was writing in a time of growing authoritarianism and at some point we are going to have to recognise that this is no longer about public health, but about a reluctance to relinquish power, once seized. Moreover, for investors it signals an important battle between Common Law and Napoleonic law principles that has long term consequences for growth and financial markets.

“Puritanism: The haunting fear that someone, somewhere, may be happy”.

H.L Menken

The behaviour by governments over Covid increasingly appears to be less about Public Health and more about control. Take the example of mask wearing; the declaration by the WHO in the summer that mask wearing was ‘a good thing’ was not only a reversal of their previous view but came without any scientific evidence to back it up. There are as many studies saying they don’t work as there are those saying that they do and none of them suggest wearing masks outside works at all. And yet, two places I spend a lot of time, Hong Kong and France, both moved to make the wearing of masks compulsory outdoors back in the summer and in Hong Kong they even closed the beaches.

Masks are a Gateway Drug

Emojis

The reality is that Covid has brought forth society’s natural killjoys and puritans and they are reluctant to give up their powers. For many of them, there is a degree of ‘China Envy’, not of its recent track record of bringing hundred of millions of people out of poverty, but of its ability to control the population. The forced wearing of masks has thus become something of a gateway drug for these authoritarians and has also brought forth those in favour of a surveillance state in terms of permanently tracking and tracing the population as well as those in favour of things like digital ID cards, health passports and other bio-security measures.

Despite almost no deaths in Hong Kong – a total of 108 this year and only 3 since September – the authorities show no sign of letting up. Indeed, last week, on the same day that a Danish study on mask wearing was finally published – its delay seemingly being a function of its uncomfortable conclusion (that they don’t work) – the gyms in Hong Kong were forced to make mask wearing compulsory while doing exercise. As a result most customers simply stopped going. Bars in Hong Kong were also closed as were some schools. This was on account of a cluster of positive test results in ‘dance classes’ in the New Territories frequented by middle aged ladies and younger ballroom dancing gentlemen. To date almost all Hong Kong deaths have been in care homes and yet the 8 million population remains ‘under control’.

Similarly in the UK, after one month of lockdown, all but 1 million of the 23 million people who were previously in tier 1 (lowest level) are to be put into tier 2, with seemingly no justification whatsoever, a move that effectively closes all pubs not serving ‘substantial meals’. Every twitch in the statistics and an unspoken (and unachievable) zero covid strategy demands any enjoyable activity be stopped. It’s as if the temperance league have returned.

Meanwhile in France, the Ski resorts are said not to be opening for Christmas and the New Year. Well not exactly, they can open, but the lifts can not. Too dangerous. Presumably healthy people already likely wearing masks in a ski lift are somehow more risky that the Metro in Paris? Bars and restaurants remain closed as well. Another, even more ridiculous statement was that the inevitable ski accidents might overwhelm the health system (!) It goes without saying of course that protests about government policy are strictly clamped down upon ‘for health reasons’ in France, UK and Hong Kong (as well as most other places in lockdown).

There is also the Medical Industrial Complex, the Merchants of Health who are encouraging the concept of a permanent test and Vax state. The recent announcements on Vaccines have tended to dilute some of the frustration with ‘Never Christmas’ in a ‘light at the end of the tunnel’ kind of way and certainly the strong performance of markets in November appears to suggest a belief that Vaccines are going to ‘save us all’. However, one important thing that might have slipped by relatively unnoticed was the announcement by AstraZeneca that it is going to do more trials on its vaccine, as the 90% efficacy rate that it claimed only occurred in a sub group where the initial dosage had been incorrect. This statement, just after the UK market shut on Thursday and with the US closed for Thanksgiving, suggests that they are concerned they won’t get FDA approval. Aside from the share price implications it suggests that the euphoria over the wonder vaccines might fade rapidly as it dawns on the public (and the politicians) that they might not actually work in the way they thought.

More generally, we are seeing a deliberate attempt to shift away from Common Law to Napoleonic law. This is bad for Growth and Innovation.

More importantly perhaps for markets and investors is this deliberate attempt to shift away from Common Law principles to Napoleonic or Justinian Law. The former – common to most Anglo Saxon nations – can be best summed up by the statement “Anything is allowed, unless it is forbidden”, while the latter – found in most of Europe, South America, Russia, China and Japan – is expressed as “Everything is forbidden, unless it is allowed”. A moment’s reflection shows how this affects attitudes to risk and innovation. If you have to ask permission to do anything, usually from an official or lawyer who has no upside in your achieving anything, it is more than likely that they will say no.

Institutions understand this and recognise that it is usually more practical and efficient to allow things to run on more of a bottom up rather than a top down basis, indeed the British Army have an expression that it is “always better to apologise than ask permission”. It is also likely no coincidence that the Anglo Saxon countries tend to have much more of an Equity/Risk culture and that those people with more of a risk attitude tend to migrate and congregate there. The most dynamic and creative places tend to be where no permission is required and individuals are free to make their own judgment on risk.

Part of the persistent irritation between the UK and the rest of the EU that ultimately led to Brexit was this difference in institutional approach which led to multiple restrictions being imposed in order to allow control by the European authorities. Things were banned or heavily regulated to suit producer interest groups or so they could be subsequently be ‘allowed’ and thus controlled. The Napoleonic system also explains the different approach to lobbying in, say, the EU, where companies are as likely to be lobbying for permission to do something as they are for officials to block their competition (the US approach).

This permission culture has led to very weak growth in the Eurozone and also places like Japan, save that which came from centrally planned infrastructure spending and in Europe has led to situations such as high labour costs but huge youth unemployment. Not surprisingly a large number of younger Europeans migrated to the more open labour markets and gig economy in the UK. Now that the UK is finally leaving (which would have been the big story of 2020 had it not been for Covid) it is not surprising that the EU is trying hard to ensure the so called level playing field, i.e. it doesn’t want any competitive forces unleashed on its protected producer groups. Those fearful of a no deal Brexit might consider that this could be very bad for some of those protected groups.

Government interference in markets makes them less efficient and protects inefficient producers with powerful lobby groups. Fixing prices of things such as labour means markets fail to clear and also encourages political patronage. Not surprisingly then, the governing classes prefer the Napoleonic law approach and in Anglo Saxon countries have moved aggressively to try and impose it on the back of Covid. Whether or not they succeed will determine whether or not trend growth in Anglo Saxon economies returns to ‘normal’ or whether we all become like Old Europe and Japan.

Share this article

One Reply to “Always Covid, Never Christmas”

  • Nicely put and interesting to see despite lock downs and masks; covid is still evolving, as seen in a rising number of re-infection cases with different strains. Also our lack of understanding asymptomatic cases and how they influence the spread is troubling.

Leave a Reply

Your email address will not be published. Required fields are marked *